I speak and write about investor protection, money management, health economics, ecology and social issues. My latest book is "Keynes's Way to Wealth," a revealing look inside the successful portfolios of the world's most famous economist. All told, I've written 14 books including The Cul-de-Sac Syndrome and iMoney: Profitable ETF Strategies for Every Investor and write a column for Reuters.com. I speak across the U.S. and my writing also appears in the New York Times, Morningstar.com and other national publications. This blog delves into financial and social deceptions.

Newtown's New Reality: Using Liability Insurance to Reduce Gun Deaths

We are all mourning now. Children should not be murdered in their classrooms. They shouldn’t be afraid that their teacher will be shot, as my 12-year-old daughter worries. Schools should not become armed camps.

For the record: I’m not of the mind that every gun-owner is a threat to society nor should we restrict gun use for hunters, collectors and target shooters. My father owns guns, I have shot guns many times, have known people who were murdered by guns and witnessed a police shooting in 1981.

But I don’t think a widespread seizure of some 300 million American weapons will ever work. In fact, just mention “gun control,” and the very phrase shuts down conversation and invokes the vague rights and curse of the second amendment. Challenges to the constitution would never make it through the Roberts court, anyway.

What we can do is to look at gun sales through the lens of social economics.

Market-based risk pricing is the partial answer. Let’s agree that guns as weapons are inherently dangerous to society and owners should bear the risk and true social costs. Translation: Require both owners and sellers to purchase liability insurance that is universally underwritten by actuaries according to relative risk.

Given that gun violence, which kills more than 30,000 Americans annually, is harmful not only to our well being, but our economy, we should use economic disincentives to regulate its use.

What Other Countries Do

In relative terms, gun deaths are out of control relative to other kinds of fatal injuries. According to the Centers of Disease Control, absolute numbers don’t tell the whole story. Gun-related fatalities are nearly as high as traffic deaths, according to the Centers for Disease Control, at around 10 per 100,000 in population. In England and Wales, there were 39 gun-related deaths (in 2008-2009). You do the math.

Of course, in the U.K., Japan and other countries that have socialized medicine, guns are extremely difficult to obtain. That directly reduces their acquisition and misuse. Here’s what theEconomist had to say recently about the U.K.’s gun control measures:

“After a couple of horrible mass shootings in Britain, handguns and automatic weapons have been effectively banned. It is possible to own shotguns, and rifles if you can demonstrate to the police that you have a good reason to own one, such as target shooting at a gun club, or deer stalking, say. The firearms-ownership rules are onerous, involving hours of paperwork. You must provide a referee who has to answer nosy questions about the applicant’s mental state, home life (including family or domestic tensions) and their attitude towards guns. In addition to criminal-record checks, the police talk to applicants’ family doctors and ask about any histories of alcohol or drug abuse or personality disorders.

Vitally, it is also very hard to get hold of ammunition. Just before leaving Britain in the summer, I had lunch with a member of parliament whose constituency is plagued with gang violence and drug gangs. She told me of a shooting, and how it had not led to a death, because the gang had had to make its own bullets, which did not work well, and how this was very common, according to her local police commander. Even hardened criminals willing to pay for a handgun in Britain are often getting only an illegally modified starter’s pistol turned into a single-shot weapon.”

What About the NRA?

Will America ever have gun laws that come close to England’s? I think there’s a better chance of Ron Paul getting elected president. And every politician proposing new gun laws has to run the gantlet of the National Rifle Association and affiliated groups — and face the fear of not getting re-elected. But is the NRA really that powerful? Paul Waldman, writing in The New York Times online, cites research that shows that Americans aren’t afraid of new gun regulation:

“Gun advocates note that when surveys ask broad questions on gun control, more Americans say they are against it than for it. But that can’t be a result of our national debate. The last time we really debated the issue – in the 1990s – support for restrictions rose. But after the N.R.A. successfully convinced Democrats that they lost Congress in 1994 and the White House in 2000 because of the gun issue (contentions contradicted by the evidence), Democrats retreated from the issue in fear. So in recent years, the debate has sounded like this: Gun advocates say Democrats are sending jackbooted thugs to take away everyone’s guns, and Democrats assure everyone they have no plans to do anything of the sort. So it’s not surprising that support for “gun control” has fallen.

But public opinion looks much different when you ask people specific questions. Polls show that majorities of Americans favor almost every restriction actually being proposed to set limits on gun ownership. For example, the General Social Survey has long found three-quarters of Americans saying everyone should have to get a permit from the local police before buying a gun. A Times/CBS News poll last year found 63 percent of Americans in favor of a ban on high-capacity magazines.”

So if Americans rose and demanded that public massacres were unacceptable, what kind of gun regulation would make it through the political sausage making? Outright bans are generally non-starters and it’s unlikely that the constitution would ever get amended because red states would never agree to dramatic restrictions.

When you buy a car, your insurer underwrites the risk according to your age, driving/arrest/ticket record, type of car, amount of use and other factors. A teenage driver behind the wheel of a Porsche is going to pay a lot more than a 50-year-old house wife. A driver with DUI convictions may not get insurance at all. Like vehicles, you should be required to have a policy before you even applied for a gun permit. Every seller would have to follow this rule before making a transaction.

This is where social economics goes beyond theory. Those most at risk to commit a gun crime would be known to the actuaries doing the research for insurers. They would be underwritten according to age, mental health, place of residence, credit/bankruptcy record and marital status. Keep in mind that insurance companies have mountains of data and know how to use it to price policies, or in industry parlance, to reduce the risk/loss ratio.

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Excellent article. I discussed this very issue with a stranger on a plane ride and this summed up our thoughts very well. I’m also a gun owner but non NRA member; I’m ashamed of them. Most people don’t realize what a .223 caliber shell does and that having clips of more than 3, all you need for hunting, is crazy. One of the victims was shot 11 times, the derivative of this bullet can be seen in slow motion on youtube: https://www.youtube.com/watch?v=uQx2eHpDVnE

Except buying a house or a car isn’t a constitutional right. Once the price of insurance reached the point that only the wealthy could afford it, the argument could be made that you were denying citizens their constitutional rights. Slide another right into place and see how that would sit with you. Imagine forcing people to buy “voting insurance.” The more critical the election, the more critical your district, the higher your insurance until, in some districts, only the wealthy could afford to vote. How about “free speech” insurance? I know a few “big mouth” news commentators I’d like to charge a fortune. Problematic to say the least.

“Those most at risk to commit a gun crime would be known to the actuaries doing the research for insurers. ”

Sounds like it would work as well as allegedly “ mandatory car liability insurance”–only people with something to lose would buy it (we’ve been hit by 3 people who have not had insurance, despite the law, and NOTHING happened to them). The people most at risk for committing a gun crime would not bother to buy liability insurance (sometimes I think these mandatory insurance op/ed pieces are written by insurance companies). The only people who would buy this insurance are people who care whether they are breaking the law. Besides, what this has to do with mass killings is beyond my comprehension–do you think any of the parents of those dead children would care that they are collecting a big insurance payout after their children were murdered?

Excellent article. The key is to make gun owners responsible for what happens to their guns. When a gun is sold, the title is transferred. You can’t own a gun if you can’t get insurance. To get insurance you have to demonstrate that you’re not crazy, a criminal, and can secure the gun from theft. If you conceal carry, the insurance rates go up.

This is a great article and should be brought to the attention of Joe Biden’s task force and Congress. Requiring gun liability insurance is like free market gun control, and it would avoid pitting people liberal vs conservative, politician vs gun owner, etc. Insurance actuaries could research facts without politics, and the economic self-interest of insurers would require access to mental health records and other information that the FBI and ATF are unable to get.

To help get the message out, please sign the White House petition at https://petitions.whitehouse.gov/petition/require-gun-liability-insurance-order-own-gun/zybqyCJy

Gun liability insurance incorporates into the cost of a gun the cost to society, as we do with cars. Insurance should cover any damage from the use or abuse of a gun.

In addition to requiring gun liability insurance, let’s NOT ban any weapons, just limit them to be used only at licensed recreational shooting ranges–all military weapons, automatics, enlarged clips, calibers higher than needed for hunting or self-defense.

Require gun registration, with fingerprinting. Make gun owners liable either financially (instead of or along with insurance) or criminally, or both, if their gun is used criminally by a non-registered user.